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Netflix profits more than double

Online video-streaming service Netflix Inc. saw its profits more than double in the second quarter as its global subscriber based topped 50 million.

Net income rose to $71 million (U.S.) or $1.15 per share for the three months ended June 30. That’s up from $29 million or 49 cents a share in the year-earlier period, the California-based company said in a release issued after the close of stock markets on Monday.

Revenues rose by 25 per cent to $1.34 billion, up from $1.07 billion in the second quarter of 2013.

“As we gain new members, we are investing to further improve our content and member experience, and to expand the global availability of our service,” chief executive officer Reed Hastings and David Wells, chief financial officer, said in joint letter to shareholders.

“We have a huge global opportunity ahead and a lot of challenges, too.”

The letter noted that its original series and documentaries garnered a total of 31 Emmy nominations this year. In particular, the two highlighted Orange is the New Black, a hit comedy-drama about life in a women’s prison, which became the most watched series in every Netflix territory, the company said.

Netflix is “at a very critical point in its history right now. It is no longer perceived as just a company that streams old stuff. It is a company that creates new stuff that everybody talks about,” said independent technology analyst Carmi Levy.

“That’s a huge jump up in terms of maturity and branding. It really does seal the Netflix brand in the minds of consumers. This is the new HBO.”

Netflix shares gained $7.78 to close at $451.95 (U.S.) on the Nasdaq stock exchange on Monday as analysts and investors anticipated another quarter of strong growth by the company.

Shares rose another 1 per cent in after-hours trading. This time last year, the stock traded in the $240-range.

In a forecast issued three months ago, Netflix estimated that it would add 1.46 million subscribers during the second quarter, for a total of 49.81 million subscribers.

“This is a company that has consistently under-promised and over-delivered,” Levy said.

Some investors wondered if recent its $1 per month price increase, announced in May, would send subscribers running for the exits, or scare off new members.

“Netflix has done an exceptionally good job communicating the value proposition of its service. They don’t just subscribe to it, they’re part of the Netflix community,” Levy said.

“I think there’s still room for more price increases over the next few years, if Netflix really does dare go there.”

Netflix said it added 570,000 new streaming customers in the U.S. and 1.12 million international subscribers in the second quarter.

The company expects average revenue per user to “rise slowly as members at the new prices grow as a percentage of total membership,” the letter to shareholders reads. “There was minimal impact on membership growth from this price change.”

In 2011, the company faced a huge backlash when it raised its prices by as much as 60 per cent. It lost about 800,000 customers over a few months and its stock fell by more than 80 per cent.

Netflix’s customer base includes about 13 million international subscribers in more than 40 countries. The service launched in Canada in 2010.

The biggest challenge that lies ahead for Netflix is managing costs while it expands its subscriber base. It also has to strike licensing deals with movie studios and television producers to fill its virtual shelves with content while it produces its own original material, Levy said.

“On one hand, you have to stock the virtual library with good stuff. On the other hand, you can’t go bankrupt in the process,” Levy said.

“Netflix is playing in a much bigger, more tumultuous playground. It costs money to play with the big boys. The level of risk as a result goes up tremendously with each passing quarter.”

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